Development of Finnish Information and Communication Technology Industry Juha Tuunainen University of Helsinki

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1 Development of Finnish Information and Communication Technology Industry Juha Tuunainen University of Helsinki

2 Content Defining the ICT sector Characteristics of the ICT sector in Finland and abroad ICT sector from the point of view of long waves of industrial development The Nokia story Conclusion

3 What is ICT? development, manufacture and use of - electronic components - wires and cables - instruments for measuring, testing, navigating etc. - industrial process equipment - computers and computer networks - telephones and telecommunications equipment - other information distribution technologies (television and radio transmitters and receivers, sound or video recording devices) services

4 General Notes on the ICT Sector ICTs are an integral part of every business, public service and everyday life a significant structural change: 1) shift from device manufacturing towards software and service production in Europe and USA 2) mass production of ICT devices takes place mainly in Asia (China), phones becoming generic tech 3) manufacturing of devices, Internet and content production have integrated into a single business countries/firms that pioneered the development of the technology are, perhaps, losing to new entrants inter-firm collaboration has deepened from manufacturing and marketing to R&D contest btw ecosystems 4

5 Nokia s Contribution to the Finnish Economy electronics and electrical industry was the most important industrial sector, early 2000s 30 % of exports ICT formed a major part of the electronics, Nokia played a significant role in the Finnish ICT sector Nokia s subcontracting network provided SMEs an access to global markets (cf. biotech) Nokia s share of Finland s corporate taxes: 20,6 % (2002), 1,5 % (2009), its share of Finland s GDP 1,6 4 % ( ) and its share of exports c. 20 % in 2009 major turn after 2009: in 2011, import of electronics was bigger than export in 2000, Nokia employed > people in Finland + c in its subcontractor network, in

6 Significance of Nokia for the Finnish Economy before the Crisis Ali-Yrkkö, J. (ed.)

7 Finland s Investment in Nokia during the 1990s, Tekes channeled an increasing amount of its R&D funding to ICT (30 % in 2001) Tekes s relative share of Nokia s R&D funding was small, however (from 0,3 to 8 %) Nordic post and telecom administrations paved the way for NMT in 1970s Tekes s funding contributed to the development of GSM in the 1970s and 80s universities educated engineers for Nokia manufacturing of mobile phones increased during the 1990s but shifted to Asia during the 2000s, Nokia s large subcontracting network faded away + significant lay-offs

8 The Volume and Size of the Finnish ICT Sector before the Crisis Workforce Billions of Euros, persons, business units Turnover Business units ICT sector in Western countries has transformed into knowledge-based industry: the new global division of labour has had the effect that knowledge and know-how (i.e. R&D) have become more important in relative terms in the Western countries than they used to be. Hernesniemi, H. (ed.)

9 The Workforce of the ICT sector (1 000 Person-years) R&D staff Professional and Managerial staff Other white-collar workers Blue-collar workers Pajarinen, M., Rouvinen, P. & Ylä-Anttila, P

10 ICT Exports of Finland Downward turn began Communications devices Services Mobile phones (billions of euros) Pajarinen, M., Rouvinen, P. & Ylä-Anttila, P

11 Value Chain of Mobile Phones: Asia is Catching Up in R&D Research Development Production Concepts Platforms Product Design Prototypes Pilot production Mass production Rest of EU15 Finland Discontinued in 2012 North America Japan China Rest of Asia Pajarinen, M., Rouvinen, P. & Ylä-Anttila, P (adapted)

12 Staff of Nokia by Task Type in 2008 (before the Crisis) Other services Other services R&D R&D Production Production Finland Abroad Pajarinen, M., Rouvinen, P. & Ylä-Anttila, P

13 Short History of Nokia: From Wood and Paper to Telecom Mechanical wood pulp and paper factory (1865) Rubber factory (shoes, boots, tyres ) 1898 Telephone and telegraph cable factory 1922 Martti Häikiö

14 Nokia: From a Conglomerate to a Telecom Firm paper, rubber and cables: fusion in 1967 electronics: radio telephone 1964, radio telephone network 1971, digital telephone switchboards & networks s televisions, personal computers 1980s from multibranch to telecom : sold - paper rubber computers cables television

15 Nokia s Own Representation of Its Transformation (2000)

16 Positioning Nokia: Long Waves of Industrial Development

17 Number of Telecom Subscriptions in Finland: Market Expansion Source: Telecommunications 2008, Statistics Finland

18 Nokia s Handsets and Market Share (global market) millions = of copies = market share % Martti Häikiö

19 R&D Expenditure in Nokia million in 2006 value Martti Häikiö

20 Nokia s Sales and Profit millions of euros Sales without profit turning points Profit Martti Häikiö

21 What Happened in the 1990s? reasons behind the mobile phone revolution: 1. deregulation of telecom markets: from government monopolies to open global markets 2. digital revolution: from analogue to digital mobile phone networks and handsets 3. creation of universal standard (gsm) rapidly growing market = new operators adopting new technology (gsm), individual customers buying new telephones Nokia was able to take advantage from these developments

22 Nokia s Success Factors in the 1990s Patent portfolio: Nokia produced and patented key innovations of mobile phone technology in the 1990s a leading position in a high-growth market Patents effectively shut out newcomers and secured Nokia s market position Success in standardization: Nokia s technology got a central position in the standardization of GSM Domestic and Nordic markets as a testing ground for new technologies: NMT 1982, GSM 1991 Outsourcing instead of in-house production: Nokia s efficient and well-managed supplier network outperformed its rivals in producing mobile phones and their parts for the growing market

23 2000s: Nokia in Crisis 1/2 feature phone market in decline, smartphone market booming great loss of market share in smart-phones for Nokia, slight loss in feature phones

24 2000s: Nokia in Crisis 2/2 In the 2000s, manufacturing investments directed to Asia plants closed down, supplier network faded away in Finland Nokia gave up developing a mobile operating system of its own in 2011 and decided to use Microsoft Layoffs: circa in 2011 and in 2012 (the total amount of employees in 2013 was ) The market value of Nokia has fallen: 29 euros per share in ,71 euros in ,3 euros in Feb

25 Causes of the Crisis 1/2: Product Development Problems Outdated operating system (Symbian) Internal competition between Symbian and planned new operating systems (Maemo, MeeGo) Lack of coordination and communication within the development projects of Maemo and MeeGo No clear vision of the future markets and products (smartphones) No single person was in charge of product level decisions but conflicting opinions by different managers Unfinished design tools in both projects Difficulties in the quality of subcontractors work (bad code, problems in communication)

26 Causes of Crisis 2/2: Difficulties in Alliance Formation From competition between products to war of ecosystems (multi-firm alliances) Nokia dominated smartphone markets in 2010 but was unable to create an ecosystem around MeeGo: Samsung, LT, Sony Ericson and European operators did not want to cooperate At the same time Apple and Google created working ecosystems and took over the US market In 2011, Nokia did not have a product close to the quality of iphone partnership with Microsoft to compete with Google s Android and Apple s ios Unsuccessful attempt to create competitive alternative to Android and Apple

27 Nokia Today Sold mobile phone business to Microsoft in 2013 Introduced Android phones in 2014 Three business areas Mobile telephone networks (Nokia Solutions and Networks): 75 % of profits in 2013 Technology development and licensing of patents (Advanced Technologies) Geographical information systems: maps, navigation (maps; Here)

28 Current Situation Nokia s problems caused structural change in many cities; new businesses in ICT are being searched for High-level knowledge and know-how in mobile technologies still exist (e.g., networks, wireless data transfer, navigation, games) Examples of promising businesses Mobile phones: further development of Nokia s MeeGo operating system (Sailfish) by Jolla Game industry quickly growing: from communities of hobbyists to lucrative business area

29 Conclusion The importance of public sector activities in creating basis for new industry Successful transformation of Nokia from multibranch conglomerate to telecom company, aided by the growing market The significance of Nokia for the Finnish ICT industry and the whole economy was huge until very recently Mistakes in innovation and corporate management failures in product development and alliance formation: shift from mobile phones to telephone networks Emerging industries create hope